Huge Glencore IPO Brings Secretive Firm to Market

Swiss-based commodity trader Glencore is set to unveil the pricing of its mammoth $12 billion dual IPO in London and Hong Kong later this week, and in what will be be the biggest IPO of the year and the largest in the UK to date, its shares are expected to start regular trading on the London exchange on May 24 and in Hong Kong just one day later.

Sebastian Derungs | AFP | Getty Images

The Glencore logo seen in front of the Swiss commodities giant's headquarters in Baar.

But what do we know about the publicity-shy, privately owned company which has grown into the world's biggest commodity trader/producer with revenue of $145 billion in 2010? (For comparison, Goldman Sachs generated some $50 billion in revenue in the same year.) For a start, we know that it is a highly secretive firm, and even ahead of its upcoming listing, its corporate governance and activites remain opaque.

Glencore runs its worldwide operations from its shiny headquarters in the sleepy town of Baar, just some 30 kilometers outside of Zurich, in the low-tax canton of Zug, where discretion remains a key virtue.

Glencore was founded as Marc Rich & Co. by the American now-billionaire Marc Rich in 1974. Rich has long been on the most wanted list of the US Government and was charged with fraud, tax evasion, and illegal business dealings with Iran.

Rich was later pardoned by Bill Clinton. The reasons for one of the most controversial pardons in history of the United States remain unknown. In 1994, Rich was reportedly forced out of the company after misspeculation in the zinc market and sold his majority stake in the firm to existing managers. The firm was was then renamed Glencore and it continued to be run as a private, employee-owned company, led by a small circle of managers with South African native Ivan Glasenberg at the helm since 1992. Glencore currently employs some 54,000 employees directly and indirectly.

Thanks to the upcoming IPO, that handful of managers at the top of Glencore will now be added to the long list of billonaires in Switzerland. Glasenberg is set to see the value of his nearly 16 percent stake in the company rise to $9.5 billion, while four other key executives will own a combined 22 percent or $13.4 billion in equity of the company. The executives face a lock up period of 5 years. According to Forbes, Glasenberg would now tie for 93rd place in the Forbes' Global Billionaires ranking. Some 485 other Glencore employees who own less than 3 percent in the firm will become millionaires overnight.

But it's not just the firm's owners who will be reaping profits from the IPO. While Glencore has paid taxes on its industrial business, the company has paid virtually no taxes on its trading business. That is about to change. Afer its flotation, UBS estimates that Glencore's overall tax rate will jump from 10 percent to 20 percent, leaving the canton of Zug with a hefty increase in tax revenue.